One year ago, on 2 October 2014, the $1.5-billion Boundary Dam Carbon Capture and Sequestration (BD3) project was commissioned amidst great fanfare by the project's proponents - SaskPower and the SaskParty as well as the oil and coal industries.
In the year since then much water has flowed under the bridge (+ smoke through the chimney) and many lessons have been learned. Here are the highlights;
October 2014. Alberta winds down funding for CCS and puts existing projects on hold.
Only one day after Saskatchewan fired up the world’s first commercial-scale carbon capture and storage project, Alberta’s then-premier (Jim Prentice) announced plans to end funding for such projects.
In doing so he notably referred to Carbon Capture as an expensive "science experiment".
Given events since October, he was not far wrong.
October 2014. SaskPower CEO Resigns.
Robert Watson, the CEO who presided over the planning and construction of BD3, resigned less than 4 weeks after it was opened. This move was officially linked to the $50-million smart meter debacle although one can't help but wonder whether BD3's high cost and poor economics were involved.
February 2015. US Wind expansion in 2014: Industry records further stellar growth.
The US Energy Information Administration released full year 2014 generation stats which showed another record wind year. That information is summarised below for the top-10 states. 2006 data is included to demonstrate that, where the political will exists, wind energy can be expanded extremely quickly.
Three points are of particular interest;
1) Iowa, the number one user of wind energy in the US, generated almost a third of its electricity with wind turbines.
2) North Dakota, which borders Saskatchewan and consequently has a very similar wind resource, increased its use of wind energy from 0.8 to 18.3 percent in only 8 years.
3) Through a process of active policy neglect and over the 8 years since 2006, Saskatchewan actually reduced its use of wind energy. It was the only jurisdiction in North America to do so. That's pretty sad not least because Saskatchewan has the best wind resource in Canada and one of the best in North America.
March 2015. SaskWind releases financial analysis of BD3.
After more than two years of being told that wind is not competitive with BD3 and in the absence of any supporting financial material from BD3 proponents, SaskWind released a 99-page analysis of BD3 finances.
Our report contained two major findings.
The first is that BD3 is hopelessly uneconomic. The $1.5-billion investment will result in $1-billion of losses. That will mean higher electricity prices for Saskatchewan electricity consumers.
The second is that the primary purpose of BD3 is to provide cheap carbon dioxide which will be used by the oil industry for 'Enhanced Oil Recovery'.
It is telling that in the six months since that report was released neither the Government nor SaskPower, has offered any substantive criticism of its assumptions, methodologies or conclusions.
April 2015. New SaskPower CEO makes his (cleaner) mark.
There was a substantial period between Robert Watson's departure in October and the appointment of the new CEO. But appointed he finally was in April .
Mike Marsh moved quickly to set what looks to be a new, more cost conscious and cleaner agenda for the company. Barely three weeks after he started, SaskPower announced a major expansion of wind energy (600 megawatts) and followed that up in September with a substantial deal to import up to 500 megawatts of hydro-electric power from Manitoba.
June 2015. Poll: Sask public wants more of their electricity from renewables. One of the striking things about electricity in Saskatchewan is that SaskPower spends lots of time telling the public what they want (eg their PowerToGrow tour) and very little asking. One suspects this is because the wishes of the two groups are very different.
Indeed this was confirmed in June by a Saskatchewan public opinion survey into generation preferences. It showed strong support for more renewables and almost none for more coal. OK - it was commissioned by the Canadian Wind Energy Association (coal supporters will cry foul) but its results were very similar to those from elsewhere, such as this US 'survey of surveys' by Harvard & MIT.
July 2015. High coal usage does not mean that wind use needs to be constrained.
Coal proponents state (see this SaskPower-sponsored report), because it is inflexible baseload, coal cannot support high penetrations of renewable energy such as wind or solar. They therefore claim, because 44 percent of Saskatchewan electricity is generated from coal, that wind usage must be kept to a minimum - it’s currently 2.7 percent of total generation.
However an excellent infographic from the Washington Post suggests otherwise. It shows the highest user of wind in the US, Iowa at 29 percent, actually generates more of its electricity from coal (54 percent) than Saskatchewan (44 percent). Indeed our neighbour, North Dakota, generates 74 percent of its electricity from coal and 19 percent from wind. This figure is rising fast with the construction start announced, earlier this week, of a $400-million wind project which will provide 2 percent of the state's electricity.
July 2015. SaskPower BD3 head spends $400,000 promoting carbon capture.
Mike Monea, the head of the BD3 scheme, incurred these expenses travelling the world selling BD3. Over that same time period he took home $1,330,934 in salary of which $360,451 was in 2014 (BTW that's $30,038 monthly).
SaskPower noted that Monea's travel costs are not excessive because he is "in high demand abroad". Of course this might lead one to ask why all those demanding people are not paying for his travel.
Monea used his travel to promote the economics of BD3 with comments such as this in Norway; "Once people hear that the economics are very good, maybe we won't have everybody dash to gas and throw out coal." Mr Monea's boosterism of BD3 is understandable given his generous salary but strange given that his economic assessment appears at odds with everyone else's (see below).
July 2015. Global Carbon Capture and Storage Institute releases cost analysis (& its not pretty).
We first publicly criticised BD3's economics in December 2014 by posting our material to the BD3 Wikipedia page. A SaskPower employee then tried to delete those amendments and criticised our analysis with "Negative earnings .... is [sic] pure speculation at this point based on absolutely no financial data." Apparently not: a Wikipedia administrator felt our original post to be sufficiently well referenced that they over-ruled SaskPower's deletions.
How ironic that only a few months later the Global CCS Institute released 'The costs of CCS and other low carbon technologies in the United States: 2015 update'. The report contained the following chart which shows, as per our March estimates and similar to US government data, that coal with CCS is at least double the cost of wind energy. While the Global CCS numbers do not directly confirm our claim of negative BD3 earnings - nonetheless the fact that we were correct on costs strongly suggests, especially in the absence of anything to the contrary from SaskPower, that our earnings forecasts are also accurate.
August 2015. SaskPower announces a 2 percent rate hike effective immediately.
The SaskPower release noted some of the investments necessitating the rate increase including a $550-million upgrade at Queen Elizabeth power station in Saskatoon, a $10-million upgrade to Albert Park substation in Regina and a $6-million upgrade to a substation in Shaunavon. It is interesting to note that none of these items were unplanned - hence they do not appear to justify an unscheduled rate hike.
It is also of note that neither the total $1.467-billion BD3 investment nor the $230-million of it which was a cost overrun, were included in that list. This leads one to conclude, as our March report stated, that BD3 will mean higher electricity prices, for Saskatchewan electricity consumers, for the foreseeable future.
September 2015. SaskPower confirms BD3 exists to supply carbon dioxide to oil industry.
Given the lack of a business case for BD3 one might reasonably wonder why SaskPower /the Government would funnel $1.5-billion of public funds into a project which creates losses of about $1-billion for electricity consumers. In our March report we proposed (page 31) the real reason is that the oil industry needs below-cost carbon dioxide so it can continue to extract crude from aging oil fields in Western Canada.
As it happens this is exactly what has been happening. In a surprising admission this SaskPower report confirmed that the oil industry is indeed the underlying rationale for the project.
It notes (page 14) the oil industry’s efforts, to secure a cheap source of carbon dioxide for enhanced oil recovery, extend back to the 1980s. Twenty+ years later SaskPower had been convinced (page 20 & 21);
It is of note that none of the "strong evidence" referenced in that report has been presented. On the contrary, there is overwhelming evidence indicating that BD3 has wasted $1-billion of public funds.
SaskPower's report might also have caused Saskatchewan electricity consumers to wonder why their Crown-owned electricity company has suddenly and surreptitiously, became a major supplier of below-cost carbon dioxide to the oil industry.
September 2015. UK Carbon Capture project uncertain after major partner pulls out.
A £1-billion ($2-billion) UK flagship CCS project was thrown into turmoil when, after 5 years of study, the Drax power company - owner of the UK’s largest (and coal-fired) power station (Drax) and the intended location of the White Rose carbon capture facility - said it was pulling out.
White Rose is one of more than a dozen carbon capture projects in the UK which, in the last 8 years, has failed to get underway. The reason? The UK’s Financial Times notes “efforts to build them have repeatedly foundered around the world because they are so expensive.”
A major positive in the last 12 months is that SaskPower has gained a progressive new CEO who is trying, no doubt despite much internal resistance, to lead the company in a new, cleaner and more cost competitive direction. That is to be encouraged.
However and concerning the legacy he inherited;
The last 12 months have confirmed that BD3 is an economic wasteland. The deal structure means that its poor economics cannot be blamed on weak crude oil prices and must, as a result, have been known well before construction even started.
Electricity users of Saskatchewan may therefore be wondering why it was approved in the first place.
Specifically: why did this Government authorise the expenditure of $1.5-billion of public funds on a scheme which it knew, in advance, would generate $1-billion of profits for a private oil company and $1-billion of losses for SaskPower?
Happy Birthday BD3!